Customer Lifetime Value Calculation for Email Marketing

Customer Lifetime Value Calculation for Email Marketing

“What can I spend to get a new subscriber and what will it bring me?” a question that I often hear when marketers are creating their email marketing plans. The answer lies in knowing what an email subscriber is worth (to you).

So how can you calculate ROI and the customer lifetime value of an email subscriber?

Calculating ROI

The hard part in calculating the Return on your Marketing Investment (ROI or ROMI) is to uncover the data. There is a free email marketing ROI calculator on the site. ROI can show you how much return certain investments have had, and see which have been effective. This allows you to compare and select tactics and channels to focus on more (or see which ones you need to improve).

Calculating your own email ROI also allows you to play with the numbers to see the impact of changes.

Defining the Customer Lifetime Value of an email subscriber

Email subscriber lifetime value is a same kind of metric as a customer lifetime value (CLV). But instead of taking the lifetime of the customer relationship, we take the lifetime of the email subscription and the impact that the email program has during that time.

So we are not looking at the total profits a customer will bring, but the total additional profits that an email subscription represents.

Calculating Email Subscriber Lifetime Value

Calculating Email Lifetime Value is a bit more complex than ROI. If you have the statistics of generated profits per subscriber it would be the most accurate, because that allows for a lot more analysis and insights. But often that data is not (easily) accessible.

Let me show you a way to make an estimate of your email subscriber lifetime value. With that we mean the added value (revenue) of a subscriber during the lifetime of its email subscription.

A way to calculate the lifetime value of your email subscribers

To get the lifetime value of an email subscriber we need these three ingredients:
1. The profits generated by email marketing
2. The number of active subscribers
3. The average lifetime of your subscribers

Profits generated from email marketing

1. Look up the profits of your marketing efforts during a 12 month period. You want to basically exclude all non-marketing related revenue, because those would have been there if you wouldn’t have been marketing at all. Intelligent CRM or financial systems should be able to generate these numbers for you.

2. Dive into your analytics and determine what part of those profits came from email marketing. There are different forms of attribution you can choose from, like last touch (last click) or assisted conversions.

By combining profits and the role of email marketing in generating these, we now have the total profits generated via email in the last year. A common mistake is to look at revenue instead of profits. But you want to know what is the net value email subscribers are adding. Now who contributed to these profits?

The active email subscribers

Only active subscribers can generate revenue via email. Inactives can still be clients and generate profit, but just not via email. There are probably a lot of inactives in your database. If we want to know how long a subscriber is active, we also need to know when subscribers become inactive.

1. All email addresses that bounce or have unsubscribed are inactive. But also the subscribers that have stopped opening and clicking on your emails for a longer period of time are inactive. You can choose a period or a number of emails received to set the point where you call them inactive.

2. Look up the subscription date and the date they became inactive for these addresses. For all other active subscribers look up the time they are in your database. Now these two numbers together will give you the average “lifetime” of an email address.

The lifetime value of an email subscriber

1. Now divide the total of email marketing profits by the average number of active subscribers in your base during the last year. This will give you an indication of what an active subscriber will contribute in a year.

2. Take the profit you make of an average active subscriber in a year and multiply it by the average lifetime of an email address in your database. There you have it. The number for your email marketing lifetime value.

Customer lifetime value calculation and Email Marketing

The email subscriber lifetime value calculation can be even more sophisticated and refined. But with the combination of Lifetime value and ROI you have strong numbers that can help you to refine and create focus in your email marketing program. A huge step forward for most email marketers.
CLV image via Brandwise

Jordie van Rijn is an independent email marketing consultant. Next to helping companies improve their email marketing results he gives email marketing training and is a writer and speaker in the field of online marketing.